Do relative leverage and relative distress really explain size and book-to-market anomalies?

NCUIR > School of Management at National Central University > Department of Finance > journal & Dissertation > Item 987654321/51683

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Title:	Do relative leverage and relative distress really explain size and book-to-market anomalies?
Authors:	Chou,PH;Ko,KC;Lin,SJ
Contributors:	財務金融學系
Date:	2010
Issue Date:	2012-03-27 19:02:44 (UTC+8)
Publisher:	國立中央大學
Abstract:	In a capital asset pricing model (CAPM) framework, Ferguson and Shockley [2003. Equilibrium "anomalies". Journal of Finance 58, 2549-2580] propose two factors constructed on relative leverage and relative distress, and show that the two factors subsume Fama and French's [1993. Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33, 3-56] factors constructed on size and book-to-market (BM) in explaining the cross-sectional average returns of the 25 size-BM portfolios. Based on tests on individual securities, we find that all factors fail to fully explain the common asset-pricing anomalies. In the spirit of Merton's [1973. An intertemporal capital asset pricing model. Econometrica 41, 867-887] intertemporal CAPM, we propose an augmented five-factor model, which incorporates Ferguson and Shockley's [2003. Equilibrium "anomalies". Journal of Finance 58, 2549-2580] factors into the Fama-French three-factor model. The empirical results show that a simple conditional version of the augmented model is able to explain most well-known asset-pricing anomalies. (C) 2009 Published by Elsevier B.V.
Relation:	JOURNAL OF FINANCIAL MARKETS
Appears in Collections:	[Department of Finance] journal & Dissertation

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